The Truth about Wholesaling!

The Truth about Wholesaling!

Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

There are so many people and companies out there who claim to be wholesalers and many more newbies who claim to want to start out in wholesaling as a means to get started in the biz.

Let me tell you about a recent experience with a so-called wholesale deal: You be the judge too!
A property was offered to me as a wholesale purchase.
It was offered at $270k with only $10k in rehab (so claimed the wholesaler) and the exit value they provided was $350k. With these numbers, the deal is at 80% of value which is pretty much the most I could pay. I explained that the exit price appeared to be on the high side (just from my expert knowledge of the area) and that $10k in rehab is pretty rare. I was then told that they may be willing to sell to me at $260k (so obviously they had at least $20k in mark-up at their OG price, which by the way is fine if the deal had a good spread, this one was bare)
With that reduction in mind, I went to the property.
It was very close to the freeway and the freeway noise could be heard quite loudly from the yard and slightly from the inside with all doors closed. This decreases values some what. Next, I found that the condition of the property was no where close to $10k in minor rehab. The kitchen had no place for a refrigerator with the current layout and it was poorly designed. The cabinets appeared to be newer, but done cheap and laid out poorly. The countertops needed replacement to granite, and new kitchen appliances. All flooring needed to be replaced, there was some foundation issues from the earthquake of 94' (Northridge quake), the bathroom was in need of a full gut and rehab new, all bedrooms needed new light fixtures, closet doors, and some electrical upgrades, plus the driveway needed to be re-surfaced and the chain-link fence removed and replaced with a more appropriate wood fencing for curb appeal. Both interior and exterior needed paint, and all windows should be replaced new (requiring some minor stucco repairs as well.)
After my evaluation, it was determined that the exit value was $300k ($319k as the max high list point) and the rehab was $30k and could be $35k.
At a $260k purchase and $30k rehab with $310k exit, this deal is at 93.5% As such, it is an oxymoron to use the word deal to describe this investment. I only pray that some sucker does not get screwed on this property.

The moral of the story: To be a true wholesaler, you must give out true and accurate figures, otherwise you make a bad name for yourself.

To be a true wholesaler you need these 3 main ingredients:
1. The ability to contract RE at great discounts.
2. The ability to build a real buyer's list (real cash buyers with a real proof of funds)
3. Ability to evaluate your market and ability to peg rehab numbers. Both of these require a vast knowledge of the local market conditions and the know-how to quote repair items.
Without ALL 3 of these items, you CAN NOT be a successful wholesaler.
To add a 4th item, you should be honest, provide accurate numbers, and provide as much due diligence to your potential buyers as possible. This will allow you to keep your buyers coming back for more deals.

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Member since 2010 · 16 posts · 124 votes
15y

Maybe they are a new company that have ambition but lack some experience in evaluation. I hope you left the same results you described in your post on their website or emailed them what you found. Maybe it will give them some insight as to what to do/not to do before putting another property like this on the market. All of us begin making dumb mistakes and misjudgements, it's only bad when we ignore feedback from those who can offer wisdom.

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  • Member since 2021 · 1 post · 2 votes
    5y

    I was involved in wholesaling for a few years, or should I say, "attempted" wholesaling. I was pretty good at getting good properties under contract, but not having a good buyers list it didn't matter. Only closed 2 deals in over 3 years. And, even then, at least to me, the amount of hours I was spending reviewing properties, only to give them back, just didn't make sense. 

    Now what did make sense was what I learned and how to get good deals on properties. We ended up buying 5 of the properties that we were going to wholesale, and flipped them. What people don't tell you is that unless you do everything correct, using too expensive of items driving up cost, carrying costs, etc., we probably left over $100K on the table, maybe more on 5 rehabs. And though we did ok, if you spread out what we made over the past 5 years, it wouldn't be enough to live on. 

  • New to Real Estate · Charlotte, NC · Member since 2020 · 2 posts · 5 votes
    5y

    As an aspiring wholesaler and real estate investor, I thank you for sharing this information. Although I don't have much, if any, experience in the field, I have already noticed that a large number of individuals do the bare minimum, causing me to think that "the minimum" was the norm in this industry. This post reassures me that going the extra mile will pay off!

  • Flipper/Rehabber · East Coast, Beast Coast · Member since 2021 · 36 posts · 15 votes
    4y

    What I have learned in todays market .... Everything is a deal for the right unique Investor. There are Investors who know what they want, and are willing to pay up to 90% / 95% of market value.. Basically turn key Investors, who know where they want and or need to allocate funds .. Not all REI are buying deals to flip... But may want a ready to go investment that will create short term, or long term passive income and or write offs... Im sure I am not saying anything unique that most already know. But after meeting with an Investor through a referral, I learned why , where, and how they wish to allocate funds. Now I am off to the races to find what they are looking for.

  • Investor · Edmond, OK · Member since 2020 · 6 posts · 4 votes
    4y

    Unfortunately this is very common among whole sellers. Low threshold of entry typically means low performance umong the majority. But just like any other business this also allows for the quality whole sellers to shine and build long lasting relationships. 

  • Specialist · CA · Member since 2016 · 7 posts · 1 vote
    4y

    That was a good read! I do think ethics go a long way in maintaining long valuable relationships with invenstors!

  • Specialist · CA · Member since 2016 · 7 posts · 1 vote
    4y
    Originally posted by @Eric Clinton:

    What I have learned in todays market .... Everything is a deal for the right unique Investor. There are Investors who know what they want, and are willing to pay up to 90% / 95% of market value.. Basically turn key Investors, who know where they want and or need to allocate funds .. Not all REI are buying deals to flip... But may want a ready to go investment that will create short term, or long term passive income and or write offs... Im sure I am not saying anything unique that most already know. But after meeting with an Investor through a referral, I learned why , where, and how they wish to allocate funds. Now I am off to the races to find what they are looking for.

    That is a good point! It is really perspective based when speaking about "deals" and investors! There are plenty of turn key investors out there looking to offload and load units!

  • Real Estate Agent · NJ · Member since 2021 · 568 posts · 127 votes
    4y

    I agree, so many wholesalers numbers are way off, some just don't have a clue and some really stretch the numbers and some just daisy chain. Very Frustrating.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    4y
    Originally posted by @Richard Loniewski:

    I agree, so many wholesalers numbers are way off, some just don't have a clue and some really stretch the numbers and some just daisy chain. Very Frustrating.

     This brings up another valid issue with so many newer wholesalers. I see it time and again, wholesalers telling others to get with another wholesaler and "partner" with them creating two middle men in the transaction as if one is not already enough. Deals that get too convoluted, plus the legalities of this process make such advice terrible in my opinion. If you really want to be a wholesaler, then you need to get your own deals and know how to legally process the transaction. Finding the cash buyers is the easiest part of this whole thing.

  • Real Estate Agent · Los Angeles, CA · Member since 2015 · 218 posts · 111 votes
    4y

    Is anyone wholesaling in Los Angeles? I'd really like to know how. 

  • Member since 2021 · 17 posts · 5 votes
    4y

    I got all the steps down but just not knowing the correct paper work to use is my problem

  • New to Real Estate · Dyersville, IA · Member since 2021 · 3 posts · 2 votes
    4y

    @Will Barnard, integrity and ethical conduct seems to be a perpetual issue as long as humans are involved. Thus far, in my current W-2 career, I constantly come across people that will literally do the bare minimum day in and day out. They will never rise above their peers and they will always complain about why they do not have the lifestyle they want or the objects they desire. I have waded into the water that is real estate and I have seen many so-called "landlords" and their properties, I am appalled. The honesty, integrity, and work ethic are not my problems, the process of a deal seems to be my big holdup. I read one of your comments that finding buyers will be the easy part, once the numbers are compiled and a solid deal is put together. That point has been iterated by many people across various sources. In your opinion, what would be the best methods of locating buyers? Is there a certain method that should be used when approaching potential buyers? Would you recommend finding a local wholesaler and shadowing them for a few deals in order to better understand the process, or would that be a waste of time? Additionally, what is your take on the "foreclosure" feature of BP? Is that an accurate source for leads?  

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    4y
    Originally posted by @Ronny Harpold:

    @Will Barnard, integrity and ethical conduct seems to be a perpetual issue as long as humans are involved. Thus far, in my current W-2 career, I constantly come across people that will literally do the bare minimum day in and day out. They will never rise above their peers and they will always complain about why they do not have the lifestyle they want or the objects they desire. I have waded into the water that is real estate and I have seen many so-called "landlords" and their properties, I am appalled. The honesty, integrity, and work ethic are not my problems, the process of a deal seems to be my big holdup. I read one of your comments that finding buyers will be the easy part, once the numbers are compiled and a solid deal is put together. That point has been iterated by many people across various sources. In your opinion, what would be the best methods of locating buyers? Is there a certain method that should be used when approaching potential buyers? Would you recommend finding a local wholesaler and shadowing them for a few deals in order to better understand the process, or would that be a waste of time? Additionally, what is your take on the "foreclosure" feature of BP? Is that an accurate source for leads?  

     Ronny, the easiest and most cost effective manner to find buyers is to go to your title company and have them pull data for all closed all cash transactions in the area you work in. Then find entity names that repeat in one year. That is a proven all cash buyer. Then get their contact info and make contact. How you approach them can also be important so you do not want to come across as needy or with your hand out either, rather, come across as experience, knowledgeable and worth their time. Asking what their criteria is (very specifically and not just general data), how many they can do in a year (or at any given time) can help you understand exactly what they need. Filling that need is the difficult part of course in this competitive market. 

    As to shadowing a wholesaler, I guess that cant hurt if they are willing to allow that, but knowing they would be creating more competition for themselves could be a hurdle. I have not seen or used the foreclosure feature you referenced so I can not speak on that.

  • Member since 2021 · 98 posts · 53 votes
    4y

    Maybe because I am so green to REI. I have not seen a true wholesale deal yet. Thus, I have decided to focus on markets that I can find a rehabbed property in my price range that generates cash flow and potential appreciation. Looking in 3 star neighborhoods or above. looking for 100k or below. This price point prices me out of some of the larger markets, but up and coming or secondary markets can work quite well for me. I honestly look for buy and hold properties. I may over pay a lil, but worth it to e not to get a sucker deal.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    4y
    Originally posted by @Eric Morel:

    Maybe because I am so green to REI. I have not seen a true wholesale deal yet. Thus, I have decided to focus on markets that I can find a rehabbed property in my price range that generates cash flow and potential appreciation. Looking in 3 star neighborhoods or above. looking for 100k or below. This price point prices me out of some of the larger markets, but up and coming or secondary markets can work quite well for me. I honestly look for buy and hold properties. I may over pay a lil, but worth it to e not to get a sucker deal.

    That is certainly a strategy, but you can also look for properties not fixed up, find a lower priced better deal, fix it up, rent it, refi it and then repeat - AKA the BRRRR strategy (buy, rehab, rent, refinance, repeat). This could allow you to potentially have more equity in the deal for better cash flow, but of course more effort/work to get there.

  • Member since 2021 · 98 posts · 53 votes
    4y

    @Will Barnard. I am familiar with that strategy.  The challenge is getting the property at the right price. When I see one that looks like it is priced low enough.  Once I do the rehab. I am pretty much paying retail.  Just have not found a good wholesaler I guess.  I work a fulltime job, so no available time to search for or find motivated sellers to try to lowball.  I will continue to look for sources for that once I get started.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    4y

    @Eric Morel Try connecting with a local RE agent and have them do a search in your area and price points going after listings that are 60 days or more on market. That probably means it is overpriced and you can then make a much lower offer to see if you get any that way. I would also be inquiring with many agents for off market/up and coming listings that are not yet on the MLS. The more people you tell what you are looking for, the better your chances of landing a deal.

    Adding additional bathroom/bedroom or editing the layout could also "force" the appreciation.

  • Member since 2021 · 98 posts · 53 votes
    4y

    @Will Barnard Will do. Still have to ensure I am ready for a rehab. I am really looking for just longterm rentals. Easy to figure cash flow when you know what you are giving for a property. I have 0 properties, so not sure my 1st property will be a BRRR.

  • New to Real Estate · Salisbury Mills, NY · Member since 2021 · 13 posts · 10 votes
    4y

    @Will Barnard - Thank you for the advice.

    As I read through your original post, and the following comments from the BP community, I couldn't help but wonder what a sticky and awkward situation between the seller and the wholesaler (making an empty promise to help relieve the burden by selling the distressed property, but then later walk away when the buyers aren't interested in a clearly bad deal). 

    That being said, I'm new to real estate investing and, as you mentioned in your original post, I "want to start out in wholesaling as a means to get started in the biz". Therefore, what steps should I take to acquire the 3 main ingredients to become a true wholesaler. In other words, what would you say is the first step for each ingredient ? After the first step, what would I have to do consistently to continue to develop each ability? And lastly, would you say reading J.Scott's Book, Estimating Rehab Costs, is a step in the right direction for ingredient 3.?

  • Flipper/Rehabber · Woodbridge, NJ · Member since 2021 · 1 post · 1 vote
    4y

    hey, i understand completely and as a newbie to getting my foot in the door to RE i accept this as a lesson for me to not make a mistake as this one. 

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    4y
    Quote from @Nate Narcisse:

    @Will Barnard - Thank you for the advice.

    As I read through your original post, and the following comments from the BP community, I couldn't help but wonder what a sticky and awkward situation between the seller and the wholesaler (making an empty promise to help relieve the burden by selling the distressed property, but then later walk away when the buyers aren't interested in a clearly bad deal). 

    That being said, I'm new to real estate investing and, as you mentioned in your original post, I "want to start out in wholesaling as a means to get started in the biz". Therefore, what steps should I take to acquire the 3 main ingredients to become a true wholesaler. In other words, what would you say is the first step for each ingredient ? After the first step, what would I have to do consistently to continue to develop each ability? And lastly, would you say reading J.Scott's Book, Estimating Rehab Costs, is a step in the right direction for ingredient 3.?

    You have to know how to properly evaluate the exit value (ARV) which is both science and an art form. Knowing how to make proper and accurate financial adjustments to comps to be apples to apples with the subject property takes skill, experience (which comes with lots of practice), and knowledge of your market. Putting in gold plated fixtures thinking that will bring higher value over the comps may not if all the competition doesn't have it (aka overbuilding/over rehabbing the subject property to that specific market area). Perhaps taking some real estate courses on comps or an appraisal course could leap frog you. Knowing your market conditions (average DOM, inventory levels today, last quarter, last year, 2 years ago) is a good look into where your market is heading. Knowing which streets/neighborhoods are good or bad, which have great schools, low crime, good income growth, etc. are all important.

    Next is evaluating rehab costs (and yes, getting through (several times if need be) @J Scott book) is a fantastic start, he is wicked smart. There are other tools as well you will need like a spreadsheet of all possible line item tasks and then filling in your local area prices for labor and materials for each item. Many times I have posted in great detail how to break up the subject property into sections (and knowing the costs of each section) so that you can walk through and walk out in 15 minutes with a number in your head or on paper. As a quick example, if you know that you can do a full gut rehab of a bathroom for $10k, then you walk a prop with 2 baths, you tally in your head $20k. If you know labor and materials to swap out an old window to new is $500 and the home has 10 windows, you tally $5k and so on.

    Third part of the equation is marketing. Lets face it, wholesaling is a marketing business and if you fail at that, you will fail the entire job. I am not a marketing expert but I know that good and effective marketing is crucial.

    Hope that helps you and all.

  • Commercial Real Estate Agent · Los Angeles, CA · Member since 2008 · 148 posts · 39 votes
    4y

    Will, Be a long time my man. Wholesale game has really changed. Totally great advise, I get those emails daily. 

  • Member since 2021 · 3 posts · 3 votes
    4y
    Thank you Will for posting your experience and giving such detail on how this was a big no-go project and what not to buy. I am barely beginning my journey with rei and am at the bare surface of it all. True wholesalers are hard to find it seems?
  • Member since 2022 · 1 post · 2 votes
    4y

    Thank you for the informative insight!

  • Cabot, AR · Member since 2022 · 2 posts · 1 vote
    4y

    @Will Barnard

    I'm currently amassing a collection of screenshots from this thread and compiling my own "How to Impress your Cash Buyer" handbook with them. In a land of "gurus" you are truly a master. Thank you kindly.

  • Investor · Fresno, CA · Member since 2021 · 9 posts · 4 votes
    4y

    @Will Barnard Thank you for the post. I had a wholesaler hit me for my buybox this morning. I have nktw dealth with a wholesaler before. This thread gives good advice and warnings.

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